Investing vs. Saving: What’s the Best Strategy?

When it comes to managing money, one of the most common dilemmas is deciding whether to save or invest. For many, the decision often depends on individual financial goals, life stages, and risk tolerance. With Singapore’s unique economic environment and lifestyle, understanding the different pros and cons between saving and investing can help you craft a strategy that works better.

Saving: The Foundation of Financial Stability

What is Saving?

Saving typically involves setting aside money from income into low-risk, easily accessible accounts, such as a savings account, fixed deposit, or for some, CPF (Central Provident Fund). The primary goal is usually capital preservation and liquidity for future use.

When to Prioritise Saving

1. Building an Emergency Fund: Try having at least 3-6 months’ worth of living expenses in a readily accessible account. This is crucial for unexpected events like medical emergencies or job loss.

2. Short-Term Goals: If you are saving for a holiday, car, wedding, or down payment on a house, keeping your money in a savings account or fixed deposit ensures it’s safe and available when needed.

3. Low-Risk Appetite: If you prefer stability and want to avoid the stress of market fluctuations, saving is the safer choice.

Advantages:

• Low or no risk to your principal

• Immediate access to funds

• There are several options across different banks to choose from with interest ranging from 1% to to 7.68% p.a

Drawbacks:

• There are conditions to get higher interest rates. For example, you might need to stack it with credit card bills or other stuff for the higher interest accounts.

• Inflation may erode purchasing power over time

• Lose potential opportunity cost of investing and growing wealth over time

Techniques tried by others

• Save all $5 notes received in a separate piggy bank

• Get another friend onboard a reduce spending challenge like “No Buy 2025” together

• Ask friends to eat at hawkers instead of restaurants and cafes

• Limit the number of holidays, concerts and movies in a year

• Cap taxi rides to urgent trips or rainy days

Nevertheless, all these depend on the stability of your job and income, including living expenses like rent or mortgage payments, utilities, groceries and other payments.

What is Investing?

Investing involves putting your money into assets such as T-bills, stocks, bonds, ETFs, or property with the goal of generating returns. While investments can grow your wealth, they come with varying degrees of risk.

When to Prioritise Investing

1. Long-Term Goals: If you are saving for retirement, your child’s education, or wealth accumulation, investing is essential to outpace inflation and achieve higher returns.

2. Risk Tolerance: If you are comfortable with market fluctuations and can withstand short-term losses for long-term gains, investing can be rewarding.

3. Excess Funds: Once your emergency fund and short-term goals are covered, investing surplus cash can help grow your wealth.

Advantages:

• Higher potential returns compared to saving

• Opportunity to diversify and build wealth

• At least match against inflation over time

Drawbacks:

• Risk of losing your principal, especially in volatile markets

• Requires knowledge and research or additional cost of engaging a financial advisor

• Returns are not guaranteed and may take time to materialise

Balancing Saving and Investing

For most Singaporeans, the ideal strategy lies in striking a balance between saving and investing. Here are some tips for consideration:

a. Assess Your Financial Goals

• Short-Term Goals (1-3 years): Focus on saving

• Medium to Long-Term Goals (3+ years): Invest to grow your wealth

b. Evaluate Your Risk Tolerance

• Low risk tolerance? Allocate more funds to savings.

• High risk tolerance? You can lean towards investing but ensure you diversify.

c. Use the 50/30/20 Rule

Allocate 50% of your income to necessities, 30% to discretionary spending, and 20% to savings and investments.

d. Leverage Singapore’s Financial Ecosystem

• CPF: Use your CPF Ordinary and Special Accounts as a form of more savings and low-risk investment

• Savings Bonds: Singapore Savings Bonds (SSBs) offer a low-risk investment option with higher returns than standard savings accounts

• Investment Platforms: Endowus, Syfe, and StashAway provide alternatives to diversified investment portfolios

Key Takeaways

• Start with Saving: Build an emergency fund and save for short-term needs

• Transition to Investing: Once your savings are secure, invest for long-term goals

• Review Regularly: Periodically review your financial strategy to ensure it aligns with your goals and risk appetite

By understanding when to save and when to invest, you can build a well-rounded financial plan that balances stability and growth. Do seek professional help if needed. Whether you are just starting out or looking to refine your strategy, a thoughtful approach and regular review will help you navigate the financial landscape with confidence.

Master Your Finances Wisely,

Value Vaulter